An issuer of financial instruments or securities may engage an underwriter to assist in issuing and distributing the financial instruments in a primary offering. A primary offering refers to the issuance of financial instruments or securities from an issuer to a holder via an underwriter or any other member of a distribution chain. The purchasers of the securities in a primary offering have predominantly been institutional investors and accredited investors. Accredited investors may be defined as investors who are sophisticated or meet minimum requirements of income or net worth. As unsophisticated retail investors have flocked to the Internet and other automated trading systems to participate more actively in the financial markets, some underwriters, investment bankers, and broker-dealers seek to tap the potential market of retail customers for initial offerings, particularly in the debt securities area.
However, various obstacles may hinder the ready issuance of securities to retail customers in an initial offering. For example, an individual retail customer may not have sufficient funds to purchase a meaningful amount of financial instruments (e.g., debt securities) that makes it practical for an underwriter or a member of the selling group to deal directly with the retail customer. Further, the retail customer may not be able to comply with a short time window that is customarily used to engage in security transactions associated with a primary offering. Thus, a need exists for a distribution system that facilitates the ready distribution of financial instruments in an initial offering to retail customers.
The issuer may enlist the help of an underwriter in a primary distribution in accordance with various formal or informal practices that are accepted in the financial arena. In the context of a formal practice, the issuer may allow competitive underwriters to make distribution proposals or bids for a proposed primary offering of securities to identify an underwriter that offers the best financial terms to the issuer. In the context of an informal practice, the issuer and underwriter (e.g., bond desk of a broker dealer) may negotiate terms of the issuance of securities via facsimile, e-mail, telephone conversations or in meetings.
Regardless of what technique is used to identify a suitable underwriter with acceptable distribution terms, the issuer of financial instruments or securities in a primary offering may find that compliance with requisite securities filings are time-consuming impediments to raising funds. For example, although a new underwriter may provide better financial terms than a former underwriter of the issuer, the new underwriter may need to take additional steps, such as reviewing periodic reports of the issuer, to effectively discharge its due diligence responsibility with respect to the issuer's disclosure of financial information.
In some circumstances, the issuer and underwriter may negotiate terms of the issuance of securities via facsimile, e-mail, telephone conversations or in meetings that result in protracted time delays in the actual obtaining of the finance associated with the issuance of the securities. The delays in receiving the proceeds from the issuance of the securities may frustrate the business objectives and the smooth operation of the issuer. Moreover, the protracted delays in negotiation may lead to the cancellation of an offering because of changing market conditions or timing which make a securities issuance less desirable than when negotiations between the underwriter and the issuer were initiated. Thus, a need exists for expediting the negotiation process to foster greater cooperation between the issuer and the underwriter.
Another obstacle to coordinating the issuance of financial instruments or securities in a timely manner may be the lack of adequate market information for the issuer to make an informed decision. The underwriter may provide some assistance in this regard, but often market fundamentals are shrouded in mystery and obscured in the manner that makes it difficult for the issuer to determine whether the issuer is properly pricing the offering and offering proper terms that will be well received in the market. Thus, a need exists for providing greater and improved access of market-based information to the issuer for determining what terms of the proposed securities will likely receive market acceptance.